How to Avoid the Gotchas of High-Yield Reward Checking Accounts

Bank of the Sierra (BotS) is one of the few banks offering a nationwide reward checking account with a yield over 4.00% (4.09% APY for up to $25K as of 3/09/2010). However, the yield doesn't mean much if you don't qualify. Readers have reported a few issues that have caused them to miss a month of interest. I thought a review of these issues would be useful not only for those thinking about a Bank of the Sierra account, but also for those new to any reward checking account.

The first issue relates to the e-statements. Like all reward checking accounts, BotS requires you to enroll and receive e-statements. You might assume the enrollment is automatic. It is not. You have to activate after you apply. Here's a comment from a reader about this:

Be careful of their E-statement signup. In addition to check it during application, you need to sign up on the bank's website. The link is at the bottom of front page. Many people have been hit by this shady tactic.

Another issue concerns bill pay. One of BotS's monthly reward checking requirements is the use of its bill pay. This is not typical. Other banks often have bill pay usage as an option if you don't want to do a direct deposit or an ACH transaction. But it's a requirement at BotS that can't be substituted with direct deposit. Here's how they describe the requirement on the website:

Make at least one payment using Sierra BillPay per statement cycle (must be posted, not pending)

Note, it states that it must be posted and not pending. A reader reported an issue with this that caused him to lose a month of interest. If the payee can't take payment electronically and requires an actual check, it may take a long time before the check clears. This is what happened to the reader, and Bank of the Sierra didn't offer any leeway and was unwilling to pay the reward interest rate for that month. Update 3/10/10: The reader informed me that the disclosure that BotS gave him had no mention of posting or pending for the bill pay.

This BotS issue with bill pay may also be an issue at other banks if they require bill payment checks to clear. So if you're using bill pay to qualify for the rewards, it's better to have a payee that takes payment electronically. And make sure you give yourself plenty of time before the end of the cycle.

And this brings up another potential issue with meeting BotS's reward checking requirements. The cycles can vary each month. Here's how the bank explains it:

Statement period ends the first Thursday of every month with the qualifying period ending the business day prior, meaning that the qualifying number of days will vary from month to month

I've seen other banks have a similar policy with the end of the statement cycle. So it's something to keep in mind for anyone with a reward checking account.

I described other reward checking gotchas in December. Have you been denied the top rate on your reward checking account? Please leave a comment about your experience.

Ok, that's all helpful & very nice & fine but here's the thing that you gotta realize. This whole reward checking thing is a "deal" between the bank & the RC depositor. Sierra Bank & others know that the only reason & I mean literally the only reason that these particular groups of customers are depositing at their bank is because of the yield. That's it. It's not for the convenience or any other reason. No one is going to go out of their way to deposit at XYZ Bank 2000 miles away for any other reason. So the agreement struck is very simple really...........You send us money that we would have never have otherwise dreamed of getting & we (the bank) pay you this high yield for it. The requirements should be easy to meet & easy to understand. Why? Because basically they're incidental & beside the point. Without the yield, the conversation would not even get to "requirements". So these laborious requirements & hoops to jump through that Sierra Bank et al set up are at the very least an attempt at sleight of hand & perhaps just downright dishonest. And that's why I'd never send my money to these people.

I've had a rewards account with Bank of the Sierra for several months now, in the wake of the failure of Charter Bank and its rewards account. I haven't missed any of the Sierra reward cycle qualifications, though I did almost get caught up by the requirement to manually register for e-statements (every other rewards account I've ever had has signed you up automatically for e-statements as part of the account creation process, so Sierra's process for this is definitely out of the norm. But I happened to be talking to one of their CSRs about qualification details, and she pointed out that I hadn't registered as yet. So I did right then and there).

I'll admit, also, their changing qualification dates each month are a bit of a pain to keep track of, although it's not that hard as long as you note the future monthly dates in your online calendar. However, I choose to take such matters in stride, since they do offer and pay one of the best rewards rates around. And I figure, I don't mind a bit of leg and/or brainwork on my part in order to get a pretty good rate of return on my deposits in an FDIC-insured setting.

Could the bank make their account easier and more customer friendly... absolutely they could. But if a customer takes the time to pay attention and educate themself about the account, it's not that hard to keep in the groove.

after reading the article, looks like they're pretty straightforward to me. if you're responsible, i don't see any of that being an issue unless they deliberately hide the info and it doesn't appear that's the case.

I set up an ACH transfer from my credit union to serve as my Direct Deposit requirement with Founders Bank of Texas, and I was told that it would not qualify because "that's not what we meant by Direct Deposit--there's no third party involved."

It remains to be seen whether the subsequent ACH bill payment that I hastily set up will pass muster, but this seems to be another gray area. I specifically asked the person with whom I discussed the account before I opened it whether my intended ACH transfer would qualify. But after the fact, a different employee--and then the bank president--refused to honor the stated terms on the website.

All of the research I have done persuades me that ANY electronic transfer from another bank into your checking account is considered a Direct Deposit. However, be aware that not everyone uses the same terminology, and none of the websites or printed documentation I have examined defines what a Direct Deposit means.

I agree with kow626, if you are responsible there shouldn't be any issues. I am the kind of person who logs into my account every day so I always know what's going on. I've completed my first monthly cycle and had no problem meeting the requirements and getting the full interest rate. I've also seen claims that their online banking site is difficult to navigate and bill pay doesn't work...while the online banking site looks like it was developed 10 years ago (not a particularly eye-catching UI) it is straightforward and anyone who has ever used an online banking website should have no problem getting around. Bill pay works perfectly...and is the exact same bill pay software that Schwab Bank uses for their high yield checking account. It took about a week to get my debit card and about a week and a half to receive the checks I ordered. I hope they keep their rate high because I'm loving the extra interest and have had no issues.

Recently started using BotS, and they got me with terminology. On their website it states: Minimum one direct deposit or automatic payment from your account per qualification period (must be posted, not pending). I took "automatic payment" to mean set up an automatic payment in Sierra BillPay, which I did. At the end of the statement cycle I got an email from BotS saying I didn't meet the requirement of "One (1) ACH Direct Deposit or Auto Debit." I just chalked it up to "live and learn."